Dependent or Independent? Some Contractors May Also be Entitled to Reasonable Notice or Pay in Lieu of Notice 


October 2014

Employment and Labour Bulletin
In Khan v. All-Can Express Ltd., 2014 BCSC 1429, the British Columbia Supreme Court (the "Court") recently confirmed that a contractor providing services on a long-term and regular basis may be entitled to reasonable notice or pay in lieu from a company where the contract is terminated without cause.

All-Can Express Ltd. operates a freight and parcel transporting business under the name of Ace Courier. In June of 2007, Ace Courier engaged Mr. Khan as an owner/operator to provide courier delivery services to customers of Ace Courier. The contract relationship between Ace Courier and Mr. Khan continued until 2012 when the contract was terminated by Ace Courier, allegedly for misconduct.

Mr. Khan commenced legal proceedings, alleging that he was in fact an employee of Ace Courier, and accordingly was entitled to reasonable notice or pay in lieu of notice. In response, Ace Courier claimed that that Mr. Khan was an independent contractor and accordingly his contract to provide services could be terminated at any time, without notice. Further, Ace Courier claimed that just cause existed to terminate the contract because Mr. Khan had diverted or attempted to divert customers to a competing courier company.

At the time of his engagement as a driver, Mr. Khan signed two agreements with Ace Courier. The first agreement stipulated that he was a self-employed subcontractor and was responsible to provide his own vehicle and to pay all costs associated with maintenance and operation of the vehicle and arrange for a relief driver when necessary. In addition, Mr. Khan was to be responsible for filing his own income taxes, declaring self employed status and for arranging his own workers' compensation coverage. Mr. Khan received no benefits of any kind from Ace Courier and was not paid vacation pay.

Mr. Khan also signed a non-competition agreement which provided that during the period of his engagement as a driver with Ace Courier, and for a period of 12 months thereafter, Mr. Khan would provide exclusive services to Ace Courier.

Notwithstanding the facts which are summarized above, the Court was not prepared to conclude that Mr. Khan was an independent contractor of Ace Courier. Instead, the Court held that because Mr. Khan had provided exclusive driver services to Ace Courier over a long period of time this meant that he was in a position of economic dependence upon Ace Courier.

Accordingly, the Court decided that the proper characterization of the relationship between Mr. Khan and Ace Courier was that of a dependent contractor, and not an independent contractor. In the words of the Court, Mr. Khan was "a man with a truck looking for a job. He was required to sign some forms to secure that job and he did so".

The Court concluded that many workers perform services for others in arrangements that are structured such that they are neither strictly employment relationships nor are they properly characterized as independent contractor relationships. In such instances, where a dependent contractor relationship is found to exist, there is a legal requirement to provide reasonable notice where services are terminated without cause. The Court determined that Mr. Khan was entitled to 16 weeks notice of termination calculated at 3 weeks per year, based on his length of service from 2007 until 2012.

It is clear from this case that despite any particular agreement between the parties, there may be an obligation to provide reasonable notice or to pay severance in lieu of notice to persons who do not meet the traditional definition of an employee but who nonetheless provide services on a long-term and regular basis.

In order to avoid the unpleasant surprise of being obligated to provide potentially onerous notice of termination or pay in lieu of notice to dependent contractors consideration should be given to including a contractual provision which specifically identifies the right of contractors to receive notice or pay in lieu of notice on the termination of the contract. Also, contractors should be provided with the opportunity to receive legal advice before entering into any such contractual arrangements.

by N. David McInnes and Kaitlyn Meyer

a cautionary note

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2014